It’s official: Microsoft now owns Skype

After approval by U.S. and European antitrust agencies, Microsoft’s $8.5 billion acquisition of Skype has been finalized, the software giant announced today.

“This represents a huge leap forward in Skype’s mission to be the communications choice for a billion people every day,” former Skype CEO Tony Bates, who is now president of Microsoft’s Skype Division, wrote in a blog post. “Joining forces with Microsoft is the best way to accelerate this mission and capitalize on our position at the intersection of social, mobile and video communications.

The Internet phone company, whose brand will be retained, is Microsoft’s biggest-ever acquisition. Microsoft says it plans to integrate the Web-based communication service across numerous consumer products such as Windows, Windows Phone and Xbox. The company has said it will continue offering Lync, a similar service already by Microsoft, in its business products such as SharePoint.

With Skype apps on Apple’s iPhone, Google Android devices and Windows Phones, Microsoft will have a stronghold on Web-based communication in the mobile world. Skype’s PC software is available for both Windows and Macintosh. And Microsoft has insisted Skype’s cross-platform presence won’t fade away.

“I said it, I mean it: We will continue to support other platforms,” CEO Steve Ballmer said May 10, when Microsoft announced the deal. “Fundamental to the value proposition of communications is to reach people whether they’re on your device or not.”

The transaction is still under antitrust review in some countries, but the biggies – the United States and European Union – have given Microsoft and Skype their blessings.

As Microsoft takes the reins, Skype users may notice some changes. The biggest one: advertising.

Before Microsoft even approached Skype, a broader strategy was in the works to better monetize what is the most popular communication Web service, Bates said in May. Skype began rolling out video advertisements to about 5 percent of the U.S. market, he said, but could use the selling power of Microsoft’s online advertising business. The company also is working on interactive ads that pop up and take over the user’s entire computer screen.

Bates

“We think advertising is a very powerful monetization stream for us,” Bates said.

Microsoft is also likely to integrate Skype into its Outlook email software and Hotmail Web-mail service. Video-chatting is already available through Windows Live Messenger – but, it’s not Skype. Google, for one, already is putting video-chat in Gmail and Android phones. Apple already offers video-calling on iPhones with FaceTime.

Finally, there is the less-tangible change of putting Microsoft’s mega-muscles behind relatively small Skype. Microsoft plans to continue building Skype’s user base – as of May, the company said, the service had more than 170 million connected users and registered about 600,000 new users per day.

“Skype is a phenomenal product and brand that is loved by hundreds of millions of people around the world,” Ballmer said in today’s announcement. “We look forward to working with the Skype team to create new ways for people to stay connected to family, friends, clients and colleagues – anytime, anywhere.”

Skype, which was founded in 2003 and based in Luxembourg, has about 900 employees mainly based in Estonia and Silicon Valley. It has largely functioned like a start-up for most of its history.

And one big reason consumers like Skype is because it isn’t – well, wasn’t – a huge corporation.

Soon after Microsoft announced its intentions to purchase Skype, in late May, customers experienced a service outage. Not understanding the transaction had yet to go through, many Skype users blamed Microsoft. “Seems like #skype crash is global,” Twitter user vicciho wrote then. “Now you know it’s a #Microsoft product.”

Some technology experts also have been skeptical of Microsoft’s acquisition.

eBay bought Skype in 2005, yet turned around and unloaded it in November 2009. A group of investors bought it at a $2.75 billion valuation. Since then, Skype’s user base increased, but the company still posted a net loss of $7 million (on $860 million revenue) in 2010.

“We see this as a glaring oversight on Microsoft’s part considering that Skype was up for sale just 18 months ago at a significantly lower valuation,” Sid Parakh, an analyst with Seattle-based McAdams Wright Ragen, wrote in a May note.

In the aftermath, TechCrunch, citing an anonymous source, reported that Google entertained a $4 billion buyout of Skype – $4.5 billion less than Microsoft ended up paying.

Bloomberg News reported that Microsoft paid 39 percent more than Skype’s own valuation of itself in an April regulatory filing (Skype was gearing up for an initial public stock offering). The $8.5 billion price tag was 32 times Skype’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA).

Steve Ballmer, Microsoft’s chief executive, might as well have put the money on a bonfire for all it’s going to do for the company’s share price, which has barely shifted in his 11-year tenure. In fact at present, the share price reckons that Microsoft is less valuable as a single entity than if it were broken up. …

So what then is Skype? It’s a trophy. But Microsoft would be wise not to think it’s won the match. The most interesting thing will be Google’s reaction: it has its own VoIP service, Google Talk, and we’ll know whether it thought Skype was a clever acquisition from what it says in the next few days. The numbers, though, suggest that Steve Ballmer has made headlines, but it’s not going to help the stock. And isn’t that what you’re meant to spend your stockholders’ money on – not trophies?

But Microsoft co-founder Bill Gates praised the deal, talking up the decision as strategic and saying he urged other board members to support it.

“I was a strong proponent at the board level for the deal being done,” the Microsoft chairman told the BBC in May. “I think it’s a great, great deal for Skype. I think it’s a great deal for Microsoft.”

“The idea of video conferencing is going to get so much better than it is today. Skype actually does get a fair bit of revenue,” Gates continued. “It’ll be fascinating to see how the brilliant ideas out of Microsoft Research, coming together with Skype, what they can make of that.”